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The Economist takes a look at innovation in big companies, suggesting that “rather than chasing wonder new products, [they]should focus on making lots of small improvements:”

Blockbuster new products are harder and harder to come by, and big companies can do much better if they focus on making lots of small things better. Adrian Slywotzky of Mercer Management Consulting says that, in most industries, truly differentiating new-product breakthroughs are becoming increasingly rare.

William Baumol, a professor at New York University, argues that big companies have been learning important lessons from the history of innovation. Consider, for example, that in general they have both cut back and re-directed their R&D spending in recent years. Gone are the droves of white-coated scientists surrounded by managers in suits anxiously awaiting the next cry of eureka.

Indeed, says Mr Baumol, the record shows that small companies have dominated the introduction of new inventions and radical innovationsindependent inventors come up with most of tomorrow’s clever gizmos, often creating their own commercial ventures in the process.

But big companies have shifted their efforts. Mr Baumol reckons they have been forced by competition to focus on innovation as part of normal corporate activity. Rather than trying to make money from science, companies have turned R&D into an internal, bureaucratically driven process. Innovation by big companies has become a matter of incremental improvements within the processes that constitute daily operations.

Another factor to take into account is the fragmentation of markets. Once-uniform mass markets are breaking up into countless niches in which everything has to be customised for a small group of consumers. Looking for blockbusters in such a world is a daunting task.